Welcome to Red Thread, Euractiv’s weekly newsletter on the EU’s relationship with China and the wider Asia-Pacific.

I’m Christina Zhao in Oceania, joined by Anupriya Datta in Europe.

This week, we explore whether the promise that helped power China’s rise is beginning to fray...

On Sunday morning, nearly 13 million Chinese teenagers walked into classrooms across the country to sit an exam that has shaped modern China perhaps more than any other institution.

Outside, police managed traffic around schools, construction work was paused and motorists slowed to a crawl as cities sought to minimise noise around test centres. For a few days each year, parts of the world's second-largest economy bend around a single goal: ensuring students can concentrate.

More students sat this week’s national university entrance exam, known as the gaokao, than the entire population of Belgium. Yet the tests came with an unsettling statistic. For the second consecutive year, the number of students registered to sit declined, falling by 450,000 to 12.9 million after dropping by around 700,000 the previous year.

That's partly because of China's shrinking birth rate working its way through the system. But it also reflects a deeper anxiety. Millions of graduates are unemployed, underemployed or struggling to find the kind of work their education once promised. Urban youth unemployment among 16 to 24-year-olds, excluding students, stood at 16.3% in April. Another 12.7 million university graduates will enter the labour market this summer.

In 2023, authorities temporarily stopped publishing youth unemployment data after the rate hit record highs, later revising the methodology.

The scramble for secure work has become ferocious. Applications for China's civil service exam recently reached 3.7 million for fewer than 40,000 positions. Recruiters say employers increasingly cherry-pick graduates from elite universities, leaving others wondering if years of sacrifice will still pay off.

That uncertainty has seeped into the country's Gen-Z online culture. "Lying flat," "letting it rot" and "involution" have repeatedly trended on Chinese social media – shorthand for exhaustion, relentless competition and diminishing returns.

For generations, the gaokao served as more than a university entrance exam. However imperfect, it is seen as one of the few arenas in Chinese life where performance matters more than pedigree.

Families accepted gruelling schedules, endless tutoring and extraordinary pressure on the understanding that the exam would reward talent and hard work – and could change a person's destiny.

As state media put it: “Whether they come from urban or rural areas, rich or poor families, all candidates stand on the same starting line and compete on the basis of knowledge and ability.”

That belief helped power China's meteoric rise. European policymakers tend to encounter the products emerging at the other end of the system: electric vehicles, batteries, solar panels and humanoid robots. But those industries begin in classrooms.

The Communist Party has long relied on examinations to balance inequality with the promise of mobility. Unlike democracies, whose legitimacy rests partly on elections, Beijing's social contract has been built on the expectation that ordinary people who study hard, work hard and make sacrifices today will enjoy a better tomorrow.

Scenes outside China's classrooms this weekend suggest that millions of families still believe in that promise. The question is whether China's economy can sustain it.

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China's export machine remains at full throttle

China’s exports surged 19.4% year on year in May, official data showed, underscoring the resilience of the country’s manufacturing machine despite weak domestic demand.

Driven by AI-related products, machinery and vehicles, the increase exceeded economists’ forecasts and accelerated from April’s 14.1% pace. As Brussels vows tougher measures to shield critical sectors from Chinese competition, Chinese exports to Europe rose 7.6% from a year earlier in May.

EU leaders and officials have increasingly warned of a “China shock 2.0” and argued that excess capacity and a flood of cheap exports could hollow out European industry.

Every fifth container: Roughly one in five containers entering the EU from outside the bloc originates in China.

Beijing fumes at EU blacklist

Beijing on Wednesday warned Brussels against sanctioning its companies after the EU proposed blacklisting another 14 mainland Chinese and Hong Kong firms accused of helping sustain Russia’s war effort.

Lin Jian, a Chinese foreign ministry spokesperson, said Beijing would “closely follow” developments and take “necessary measures” if the sanctions package wins unanimous backing from EU states.

The measures would have little direct economic impact on China but highlight how the war in Ukraine has become a fault line in EU-China relations. Brussels is increasingly targeting Beijing-linked entities over sanctions circumvention and dual-use trade, even as China insists it is a neutral actor.

The lonely line: Chinese President Xi Jinping has spoken to Russia's Vladimir Putin dozens of times since Russia's invasion, but has only held a single publicly disclosed phone call with Ukraine's Volodymyr Zelenskyy.

EU follows Australia’s social media lead

Canberra is watching closely as the EU edges towards restricting children’s access to social media, potentially as soon as this summer, Australia’s Online Safety Commissioner Julie Inman Grant told Euractiv’s Anupriya Datta this week.

Australia became the first country last year to ban under-16s from creating social media accounts – including on TikTok, Instagram and Facebook – and Grant said she regularly speaks with European counterparts as Brussels finalises its approach. Read the full interview.

Still scrolling: Australia's landmark ban took effect in December. By February, researchers found two-thirds of under-16s were still using social media.

Brussels readies its China toolkit

Brussels is laying the groundwork for a tougher economic security approach to China. Trade Commissioner Maroš Šefčovič said on Friday the EU may need new tools to help businesses diversify away from Beijing, arguing that trade deficits of roughly €1 billion a day are “clearly unsustainable.”

Citing recent disruptions involving rare earths and chips, he said every “high-risk sector” should be weaned off single-supplier dependence, according to Euractiv’s Thomas Moller-Nielsen and Nikolaus J. Kurmayer.

His remarks come as the Commission considers a new trade defence instrument to tackle distortions created by China’s export-led model.

Denis Redonnet, the bloc’s chief trade enforcement officer, warned that existing anti-subsidy and anti-dumping measures would eventually reach their limits because they are too narrow, as several EU countries push Brussels to strengthen its response to Chinese overcapacity.

De Wever loses patience

Europe must urgently develop a coherent strategy to counter China's growing economic influence, Bart De Wever warned this week, arguing that the bloc risks being outmanoeuvred by a Beijing that thinks long term while Europeans settle for piecemeal initiatives.

“These people have a strategy. And a strategy is going to eat our initiatives for breakfast,” the Belgian prime minister said at an event in Brussels on Tuesday, Euractiv’s Eddy Wax reports.

Ahead of next week’s G7 and EU summits where concerns over Chinese overcapacity are expected to loom large, he urged the bloc to reduce strategic dependencies and enforce trade rules more assertively.

Macron dials up the world

As a curtain-raiser to next week’s G7 summit in Évian-les-Bains, French President Emmanuel Macron will convene a videoconference on Thursday bringing together G7 members, China, invited summit partners including Brazil, India, South Korea, Kenya and Egypt, as well as the IMF, according to Euractiv’s Clara Vassent.

The "Global Convergence Summit for Growth" aims to foster cooperation between advanced and emerging economies. The Elysée said priorities include strengthening Europe's industrial base and rebalancing trade relations with both China and the US.

China’s commerce vice minister in Brussels

Chinese Vice Commerce Minister Ling Ji is in Brussels this week for talks with EU officials, including a meeting on Tuesday with the bloc’s new director-general for trade, Ditte Juul Jørgensen.

The visit follows talks in Paris last week between EU trade chief Maroš Šefčovič and Li Chenggang, another Chinese vice commerce minister, focused on rebalancing trade and investment ties.

BYD seeks second European plant

China's largest EV maker BYD is scouting for a factory in southern Europe to house its second assembly plant on the continent, with Spain among the countries ‌being considered, a senior executive said on Wednesday.

"We would prefer to take over an existing plant," executive vice president Stella Li told reporters in Berlin, according to Reuters.

She also told the outlet this week that BYD would begin assembling cars at its long-delayed Hungarian factory in the fourth quarter, about a year later than originally planned, while an €870 million manufacturing project in Turkey has been put on hold.